Kenya pursues waivers of IMF loan conditions

Signage of IMF at the International Monetary Fund (IMF) headquarters in Washington, DC. FILE PHOTO | AFP

The International Monetary Fund (IMF) board will meet on July 18 to review Kenya’s request for an additional Sh28 billion ($244 million) in emergency loan, even as the country fell behind on key commitments including the establishment of a central payroll.

The IMF has revealed Kenya has requested certain waivers on the programme, indicating the country has failed to meet some of the conditions set in April last year when the fund approved a $2.34 billion (about Sh257 billion) loan to Kenya.

Kenya was expected to, among others, reform State enterprises, conduct a special audit on Covid-19 expenditure and enforce wealth declaration by public servants to access the loan in tranches.

“The decision to implement a common payroll system across MDAs [ministries, department and agencies] and counties was delivered with the articulation in late October of an agreed roadmap to implement the payroll system by June 2022,” IMF said in its update in December.

But weeks past the June deadline, the government is yet to fully implement the common payroll system.

IMF also demanded that the cash-strapped government make public the ownership details of all companies that are awarded public tenders as a way of curbing rampant theft of taxpayers’ funds.

Kenya has delivered on some of the IMF targets that saw authorities and the IMF reach a staff-level agreement on April 25 pending the board’s approval for the release of the funds.

“Third Reviews under the Extended Arrangement under the Extended Fund Facility and Under the Arrangement under the Extended Credit Facility, Requests for Modification of Quantitative Performance Criteria, and Waiver of Applicability for Performance Criteria under the Arrangement under the Extended Fund Facility,” IMF notes in its brief.

The multilateral lender is playing a pronounced role in shaping policy that would require the government to implement tough conditions across many sectors.

The IMF conditions came on the back of its multibillion-shilling loan facilities to Kenya where money flows straight into the budget to top up the public purse.

Under the administration of former President Mwai Kibaki, Kenya kept away from this type of credit, with most of the support from institutions like the IMF and the World Bank coming in the form of project support.

The IMF said Kenya was on track to meet its fiscal objective under the programme, and that strong tax performance this year was supporting resilience in the face of global shocks.

The fund said as indicated in April, completion of the review would allow Kenya to access approximately $239 million at current exchange rates by mid-July.

“The third reviews of Kenya’s EFF/ECF arrangements are progressing well and a meeting of the IMF board to complete the review is expected in mid-July,” said an IMF spokesperson in response to Business Daily queries.

Kenya is facing high costs of refinancing dollar loans as it seeks to tap global markets to plug the country’s budget deficits despite higher tax collections by the Kenya Revenue Authority (KRA).

The KRA raised Sh2.031 trillion, exceeding its revenue collection target by Sh148.9 billion in the fiscal year ended June 2022. Despite the collection, Kenya has struggled to secure dollar loans after markets demanded higher returns, leading to the cancellation of the $1 billion Eurobond.

Treasury Cabinet Secretary Ukur Yatani said Eurobonds had become very expensive in the wake of Russia’s invasion of Ukraine, pushing Kenya to reconsider issuing a bond.

The country will now return to the syndicated loans last taken in 2019 under ousted Treasury Cabinet Secretary Henry Rotich before the government changed its borrowing policy away from commercial banks to reduce the cost of debt and lengthen maturity to ease the payment burden.

Kenya has been forced to abandon its strategy to change the profile of its debt from short expensive commercial loans into longer-dated sovereign bonds, bringing it into conflict with IMF conditions.

The country had agreed with the IMF to stick to concessional finance to reduce debt vulnerabilities, a deal that saw it avoid syndicated loans and have preference for on multilateral loans and Eurobonds. Kenya is trying to balance its debt portfolio after commercial debt piled up and became expensive to repay, taking up more than 63 percent of tax revenue.

Treasury Cabinet Secretary Ukur Yatani told Parliament in 2020 that commercial loans would only come in form of Eurobonds to roll over principal payments when the debts mature.

Kenya’s commercial debt is mainly in Eurobonds with an outstanding portfolio of six s worth a total of $7.1 billion (Sh829.9 billion), which are traded on the Irish and London stock exchanges.

The Eurobonds have risen sharply in the past few weeks, to trade above 10 percent in the secondary market and this is an indication of the pricing the country will get if it goes to the international market.

Kenya’s borrowing hit Sh8.4 trillion on July 8, which is 70 percent of the GDP from 48.6 percent in 2015, making it unsustainable.

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